California Court Interprets Post-Nuptial Agreement Affecting Community Property Interests

mortgage-and-money-6-1237957 (2)Each state in the country has the authority to enact laws governing divorce proceedings. Statutes cover items such as the division of property, spousal support, child custody disputes, and intricate procedural matters. These provisions can vary a great deal, depending on where you live. It is important to understand how the laws in your state affect each spouse’s property interests, child custody (and support) arrangements, and other significant financial and legal issues. If you are facing a separation or divorce, you are encouraged to seek the assistance of an experienced family law attorney from the local San Diego area.

One of the most contentious issues in divorce tends to involve the division of property. Here in California, courts seek to identify and characterize property in accordance with “community property” notions. This means that property acquired or accumulated during the marriage is generally considered “marital” or “community” property, subject to division between the parties upon divorce. The couple, however, may enter into what is known as a “prenuptial” or “postnuptial” agreement in order to circumvent or avoid certain property distribution laws. Such agreements are typically enforceable in California, but the language and manner in which these agreements are executed must adhere to local law.

In a recent divorce case, the couple had signed a postnuptial agreement during the marriage in an attempt to set forth their mutual intentions regarding the reimbursement of separate property contributions to their marital home. Here, the couple bought a home together prior to marriage in 2006. They married in 2007. In order to purchase the house, the couple paid the down payment of $250,000 with a line of credit on the husband’s separate property, and they obtained a loan for the rest of the purchase price ($1,168,000). Later, the wife gave the husband $250,000 of her separate funds to pay off the line of credit. She then used another $750,000 of her own property to make improvements to the home and reduce the balance of the loan. The husband used $50,000 of his separate property to improve the home. The balance of the loan was $417,000.

In 2008, the couple entered into the postnuptial agreement, identifying the home as community property but also including a provision governing the separate property reimbursement in the event of separation or divorce. In 2011, the wife filed for divorce, and the court addressed the postnuptial agreement and specifically the reimbursement language. The agreement stated, “In the event the equity in the residence … is insufficient to fully reimburse the parties’ respective separate property contributions to its acquisition, the deficiency shall be shared equally between the parties.” Unfortunately, the house value had depreciated over the course of the marriage, adding to this already complicated financial issue.

The family court ruled that the above-identified provision was ambiguous and concluded that the reimbursement for the deficiency was limited to the parties’ equity in the house. The wife appealed, arguing that her entitlement to reimbursement was not so limited as the trial court stated. The court of appeals agreed with the wife’s position, citing the nature of the contract language, combined with the undisputed circumstances surrounding the execution of the contract. Here, the court agreed with the wife’s interpretation of the ambiguous agreement, pointing out that it supported the parties’ reasonable expectations at the time of the agreement.

While this is an unpublished opinion, the ultimate decision nicely illustrates the importance of consulting with an experienced family law lawyer before entering into any pre- or postnuptial agreement. Doppelt & Forney has been representing parties in family law matters in Southern California for more than 20 years. The office serves clients in Linda Vista, Encinitas, Scripps Ranch, San Diego, and throughout Southern California. For a free consultation with an experienced family law attorney, contact Doppelt & Forney through the firm’s website or give us a call toll-free at (800) ROY IS IT (769-4748).

Related Blog Posts:

California Court Rejects Post-Nuptial Agreement in Recent Divorce Case

California Court Upholds Prenuptial Agreement in Divorce Proceeding

California Court Reviews Jurisdiction over Marital versus Separate Property